Not the whole mid, smallcap segment is expensive; positive about realty sector, says Mihir Vora of TRUST Mutual Fund
Mid-cap and small-cap space will always be a stock pickers’ playground. This is because most of the exciting sectors where we expect high growth are represented only in the mid and small space, says Mihir Vora of TRUST Mutual Fund.
Some mid and small-cap stocks may have run a bit too far, but that need not mean that the whole segment is expensive as within mid-caps and small-caps there are significant variations in valuations., says Mihir Vora, Chief Investment Officer, TRUST Mutual Fund. In an interview with Mint, Vora shared his views on markets and the sectors he is positive about. Edited excerpts:
What is your near-term outlook for the domestic equity market? Will Nifty end the year with a single-digit gain?
We’ve had a dream run in the markets over the past eight years.
Since the inception of the Sensex in 1979, the longest run of back-to-back positive years has been seven years – from 1988 to 1994.
In 2023, we are in the eighth year of positive returns. So, if we end the year at current levels, it will be a new record streak.
In the very short term, we will continue to see volatility, mostly due to global factors but local corporates are doing well, with 15-20 per cent earnings growth.
With the recent downtick in US bond yields, if the market sees the peak of tightening past us, then there could be a year-end risk-on rally.
December usually tends to be quiet as most international fund managers will be on a break.
How should one play with mid and small-caps now?
Some mid and small-cap stocks may have run a bit too far, but that need not mean that the whole segment is expensive as within mid-caps and small-caps there are significant variations in valuations.
Mid-cap and small-cap space will always be a stock pickers’ playground. This is because most of the exciting sectors where we expect high growth are represented only in the mid and small space.
Sectors and sub-sectors like capital goods, defence, railways capex, electronics and durable manufacturing, construction, renewable power, power transmission and distribution, China-plus-one theme play, beneficiaries of the production-linked schemes, chemical and pharma companies, etc., are mostly represented only in the mid and small-cap space.
We have major state elections this year, followed by a General Election in 2024. How can this impact the stock market?
We can expect more support for the lower-income segments in the next few months.
It may be populistic but is necessary as the rural economy is still sluggish and in general the lower-end income and savings still seem weaker than those for the higher-income groups.
Also, the central and state governments will continue to spend as much as they can on the capex front. So there may be some mini-stimulus effect.
Why are foreign investors selling Indian equities? What can reverse this trend?
Very high interest rates in the Western world and the resultant US dollar strength typically create a pull away from all other markets, towards the US.
The trend will reverse as soon as we see peaking out of rates. With rates almost at 20-year high levels, we may be close to the peak and that may be good for us next year.
When do you expect a rate cut from the US Fed? Do you feel the market might have discounted it?
We do not expect a Fed rate cut at least for the next two quarters as growth and inflation are both still quite high.
However, it will be dependent on the sharpness of the US slowdown. Even in the past week there have been mixed signals, with some strong numbers and some data showing signs of growth fatigue in the US.
Also Read: Diwali 2023: Can Nifty 50 hit 25,000, Sensex touch 75,000 in Samvat 2080? Here's what experts say
Which sectors do you find attractive at this juncture?
I expect the domestic economy to do better than the rest of the world. India will be the fastest-growing large economy for the next few years. So, the preferred sectors are domestic-focused.
Banking and financials are the largest sectors, and these are expected to drive earnings growth as they are in a sweet spot – credit growth is picking up while banks/NBFCs have cleaned up their balance sheets and shored up capital. Investment-linked sectors and sectors with a strong government focus are likely to do well.
These are in power generation (renewable as well as conventional), power transmission and distribution, defence manufacturing, railways and metro capital expenditure, roads, government buildings and hospitals, water supply (nal-se-jal) and other infrastructure, capital goods, construction and real estate.
Manufacturing companies in segments with production-linked incentives like mobile phone manufacturing, white-good production, chemicals, pharmaceuticals etc. should also continue to do well.
Consumption, especially in the lower end has not picked up satisfactorily yet and stocks have underperformed due to this. If this picks up then there could be interesting plays in FMCG, auto (two-wheelers), etc.
Also Read: Diwali 2023: Nifty 50 may see healthy gains in Samvat 2080. Which sectors should you bet on?
Nifty Realty has surged 51 per cent this year so far. Is there more steam left in the sector?
I am positive about the sector as India cannot grow at 7-8 per cent without real estate doing well.
Residential as well as commercial real estate are seeing significant consolidation in favour of branded, larger developers and this phenomenon is seen across the country. So the listed players will benefit since they are the larger ones.
However, in the short term, it will need continued job-creation in the which-collar segment, which may be slowing down as IT services are slowing down.
As the new CIO of TRUST Mutual Fund how do you plan to leverage your expertise to ensure a successful introduction and impactful growth of the equity wing at TRUST Mutual Fund?
The introduction of equity funds will be one more step in TRUST’s efforts to offer the complete gamut of products and services for customers to choose from.
We believe in a differentiated investment approach and have proved the same when we launched our fixed-income funds with many unique features like proprietary indices, a limited-active approach, and a tie-up with Crisil.
We want to be consistent in what we say and what we do. Investing is ultimately an act of wisdom, not only intellect and intelligence.
For equities, our edge is the very differentiated insights that we bring to the table when we analyse companies and stocks and these are the core of our unique approach.
Our philosophy has focus and discipline as key pillars. We do not believe in proliferation and will offer distinct true-to-label products.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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